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  • Writer's pictureDanny J. C.

Blockchain just entered the building

A Blockchain is an immutable ledger in which transaction data is recorded. Its benefits include transparency, traceability, accessibility, enhanced security, cost reduction of processes, and irrevocable documentation of the processes. More details on Blockchain applications can be found here.

The ability of Blockchain-based processes to execute transactions without an intermediary or a clearinghouse very much suits a private market like real estate. The distributed ledger holds a history of a transaction, a property, an asset, or a title; it develops a digital secure identifier for a proposed transaction; and it offers an ability to transfer funds in new ways, for example using a digital encrypted (or crypto-) currency such as Bitcoin.

Blockchain in real estate therefore can eliminate the need for intermediaries like lawyers and agents by providing a means of property verification and payment to buyers. Paying for property using cryptocurrencies can also help buyers bypass bank fees. It cuts the fees associated with escrow by using smart contracts that can be customized according to a users’ needs.

The tokenized nature of cryptocurrencies makes crowd ownership and fractional sales of real estate possible.

Average Joe and Jane might not be able to afford whole properties or even access Commercial Real Estate offerings. Transferrable and tradable tokens, representing shares and ownership, the new liquid way for property and land owner to sell or enable growth-financing, accessible to a broader investor crowd.

Innovation for real estate

ATO (Asset Token Offering), STO (Security Token Offerings), DSO (Digital Securities Offerings), or TAO (Tokenized Asset Offerings) allow firms, projects or property owners to crowdfund real estate development using cryptocurrency by Tokenising Assets.

Security tokens are exactly what they sound like; securities on a Blockchain. A security token could digitally represent any number of real-world assets, from commodities, real estate or car title, to shares of a company or bonds. Therefore, security tokens are subject to securities regulations.

Tokens are also “programmable.” Code can determine how they’re used based on pre-defined criteria. For example, earning from rental can be automatically payed-out according to an agreed-upon schedule to token holders. This code can be executed without the use of a traditional middleman, like a bank.

Tokenizing assets — like a venture fund, a building or a car — enables new liquidity to these asset investments, through much easier ways of trading these assets over the web.

Potential for tokenized real estate

Wouldn’t it be great to buy a home with a few clicks and sell it in the same manner?

A world where value is exchanged at the speed in which information moves today. Blockchains' emerging technology, we are already able to use the internet to securely transfer tokens of value; seamlessly, peer-to-peer, without intermediaries.

2012 - 2018, real estate tech companies have raised over $12 billion in funding and 6 companies have been minted to the unicorn club.

2004 - 2020, global real estate investments, by region, in USD trillion...real estate emerges as the biggest asset class out there (not counting derivatives), today worth approximately $217 Trillion.

A real estate market where each property is represented by a limited supply of unique tokens that give certain rights (e.g. use of property, voting, ownership) to those holding them. These tokens are linked exclusively to the real estate asset in question and can be securely transferred to other users in exchange for payment at any given moment, simply by using your smartphone. When rights to a house, apartment or an office are represented by tokens created on an immutable, permanent, verifiable and auditable Blockchain infrastructure, the underlying asset becomes inherently divisible. This new characteristic transforms a once cumbersome and lumpy real estate property into a transportable liquid digital asset.

Predictions estimate, that by 2021 most real estate crowdfunding platforms will leverage tokenization. Investors online might be incentivized to invest in deals that offer a potential 5–30% liquidity premium upside, making the ‘traditionally’ crowdfunded investments less appealing.

Supercharging real estate crowdfunding

Security tokens are digital shares that live on a Blockchain. They offer an efficient path to fractionalize a single high-value asset like a real estate property. With increased trading activity of fractional ownership, price discovery will be enhanced and markets will become more efficient for assets that have historically traded infrequently due to high unit costs. Blockchain-based digital shares are changing how we invest online, as liquidity is increased through secondary markets. A tokenized real estate property can be traded anywhere, without limitations. The Blockchain ecosystem is a technology stack where “always open” is the de facto standard on exchanges, where tokenized properties can be traded 24/7.

#Real_Estate #CRE #Tokenization = sell upcoming or existing real estate to broader investor pool, enable earlier liquidity, automate sales settlement and profit share, sell fractions, and get ready for the next digital-only way of investing!

Digital shares outperform other methods of recording and trading ownership claims:

  • 24/7 markets

  • Decentralized trade

  • Transactional transparency

  • Irreversible code

  • Public auditing

  • Investor pseudo-anonymity

  • Rapid settlement

  • Reduction in direct costs

  • Increased liquidity and market depth

  • Fractional ownership

  • Programmability

  • Automated compliance

  • Asset interoperability

  • Self-custody

  • Fees = fraction of traditional costs

  • Accurate land titles

  • Cross-border simplification

In our world of continued technological revolution, most new technology comes with a promise to improve business and profitability. And whether one likes it or not, there can be a threat to survival if a business doesn’t adapt to the changing times. As Blockchain technology continues to evolve, it is challenging status quo and perhaps requires CRE companies to better understand the technology and revisit their existing business model, strategy, processes, and financial plan.

Blockchain technology has significant potential to drive transparency, efficiency, and cost savings for CRE owners by removing many of the existing inefficiencies in key processes. Hence, CRE companies and industry participants have to evaluate a potential upgrade or overhaul of their current systems and strategy. Blockchain-based tokenization is essentially the issuance and distribution of digital shares. It’s here to stay - and to bring investors higher liquidity, better diversification opportunities, distributed risk through token holders, and open new marketplaces through peer-to-peer transactions.

Sources: CBInsights, IWS FinTech, PwC, Deloitte, University of Oxford, McKinsey


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